Arizona Real Estate License Practice Exam 2026 - Free Real Estate Practice Questions and Study Guide

To determine the value of the building using the given information, we first need to find the net operating income (NOI).

The annual income from the property is $50,000, and the building expenses are $2,500. To calculate NOI, you'll subtract the expenses from the income:

NOI = Annual Income - Building Expenses

NOI = $50,000 - $2,500

NOI = $47,500

Next, we use the capitalization rate (cap rate) formula to find the value of the building. The cap rate formula is:

Value = NOI / Capitalization Rate

Using the capitalization rate of 8% (or 0.08 in decimal form), you can now calculate the value:

Value = $47,500 / 0.08

Value = $593,750

This calculation shows that the value of the building is indeed $593,750. The capitalization rate reflects the expected return on investment, thereby allowing us to determine what the property should be worth based on its income-generating potential.

Thus, the correct answer is supported by this methodology, confirming that the accurate value of the building, based on the provided financial metrics and evaluation techniques, aligns with the choice indicated.